Israel is one of the world’s most dynamic hiring destinations. With a highly educated, multilingual workforce and a thriving ecosystem across technology, cybersecurity, biotech, and finance, the country offers genuine access to world-class talent. At the same time, Israeli employment law is detailed and employer obligations are significant. Understanding the rules before you hire is essential.

This guide covers everything you need to know about hiring in Israel, from employment contracts and payroll obligations to mandatory benefits, termination requirements, and work permits.

How to Hire Employees in Israel

Israel’s talent market is brimming with highly educated, multilingual professionals, especially in tech, life sciences, and finance. But before you can tap into that potential, you need to choose the right hiring method. In Israel, your approach to hiring impacts everything from tax compliance to benefit obligations and employment stability.

Here are the most common ways to hire employees in Israel:

Setting up a Legal Entity

Opening a local branch or subsidiary allows you to hire directly and gives you full control over payroll, HR, and operations. However, it comes with administrative complexity, setup costs, and ongoing compliance obligations.

Working with an Employer of Record (EOR)

An EOR becomes the legal employer on your behalf, managing payroll, taxes, social contributions, and contracts in accordance with Israeli labor law. You manage the employee’s work; the EOR handles the legal details – ideal for fast, low-risk hiring.

Learn more about Employer of Record services

Hiring Independent Contractors

Contractors offer flexibility for short-term or project-based work. But Israel has strict guidelines on worker classification, and misclassification can lead to legal consequences. Be cautious and ensure contractor roles don’t resemble full-time employment.

Learn about hiring contractors in Israel

Israel Employer of Record vs Legal Entity in Israel

Before you begin hiring in Israel, you must establish the right to do so. The traditional route is to set up a local entity by officially registering a subsidiary or branch of your business.

Alternatively, you can work with an Employer of Record (EOR). This service will assume the role of a legal employer in Israel, thus removing the need to create an independent entity of your own. Which path you choose will depend on a combination of your immediate requirements and long-term strategies.

Establishing a local entity in Israel requires completing several steps. While it is possible to do this in as little as 2-3 weeks, it can often take several more. In some cases, depending on the complexity of your business and how efficiently you navigate the process, it can drag on for months.

In addition to administration costs, creating an entity can require several thousand dollars in upfront fees. You must submit a unique company name to be approved by the Israeli Registrar of Companies, prepare and translate several documents, including your Articles of Association, open a bank account, and register for taxation with the Israel Tax Authority. All this must be completed before hiring can commence.

Working with an EOR, on the other hand, allows you to bypass the process of establishing an Israeli entity and begin hiring immediately. The upfront costs are usually lower, with ongoing fees agreed upon instead. The main benefit of working with an EOR in Israel, however, is the comprehensive packages of services it can offer.

Not only will it replace the complex process of setting up an Israeli entity, but an EOR will handle all aspects of employee management, from hiring and contracting to payroll, benefits, and grievance procedures. An EOR will even administer terminations at the end of each working relationship.

Most importantly, it accepts liability for legal and regulatory compliance at every step. This reduces risk for your company while also providing the benefits of expert local knowledge and experience, allowing you to focus more resources on your core business and future strategies.

Whether you choose to create an entity or work with an EOR may depend on the immediate or long-term intentions of your company. Those seeking to test the waters, or to take advantage of an opportunity through quick access to the Israeli market, are likely to find an EOR offers the best solution. Businesses with wider or longer ambitions in Israel might find that accessing the market independently is, eventually, more advantageous.

Strengthen Your Leadership Team
with Executive Search in Israel

The Startup Nation with Bituach Leumi contributions, mandatory pension under Section 14, extension orders, and Israeli employment law compliance.

We handle employment contracts, payroll, social contributions, and full Israeli compliance.

No local entity needed. Your team can start in days.

Start Your Executive Search Today

Is Employer of Record Legal in Israel?

Yes. Using an Employer of Record is fully legal in Israel. EOR arrangements are a recognised and widely used method for foreign companies to hire Israeli employees without establishing a local entity. The EOR becomes the legal employer on record, taking on full responsibility for payroll, tax withholding, social contributions, and compliance with Israeli labor law.

Israel’s labor framework is detailed and employer obligations are significant, covering mandatory pension, severance reserves, Bituach Leumi contributions, and sector-specific extension orders. An EOR ensures all of these are met correctly from day one, reducing the risk of non-compliance in a regulatory environment where errors can carry real consequences.

Using an Employer of Record in Israel

Hiring in Israel without setting up a local legal entity? That’s where an Employer of Record (EOR) becomes your launchpad. An EOR acts as the legal employer for your team, handling all the local HR, tax, and labor law requirements while you focus on leading your people and growing your business.

Here’s what an EOR takes care of in Israel:

  • Drafts compliant employment contracts in Hebrew and English
  • Manages monthly payroll, payslips, and salary disbursement in ILS
  • Withholds and remits income tax and National Insurance (Bituach Leumi)
  • Ensures enrollment in all mandatory social programs
  • Tracks paid leave, sick days, and pension contributions
  • Stays up to date on legal changes, so you don’t have to

With an EOR in Israel, you can bypass bureaucracy, avoid legal pitfalls, and build your team faster, all without setting up a local entity.

How Much Does an Israel Employer of Record Cost?

The cost of using an Israel EOR can vary quite a bit depending on the specifics of your business and what level of service you need. Factors like the number of employees you plan to hire, their salary levels, the types of benefits you offer, and the complexity of Israeli labor regulations all play a role in shaping the final price.

In general, you’ll be responsible for covering employee wages, mandatory benefits, and any work-related expenses, just like you would if you hired directly. On top of that, EOR providers typically charge a service fee. This fee often falls somewhere between a few hundred to several thousand dollars per employee per month, depending on how customized and hands-on the services are.

While it might seem like an extra cost upfront, working with an EOR often saves companies time, legal fees, and administrative headaches in the long run, especially when entering a complex market like Israel. Plus, it allows you to scale your team quickly and confidently without getting bogged down in local bureaucracy.

How an Employer of Record Helps You Hire in Israel

Navigating Israel’s complex web of labor laws, taxes, and benefits can be overwhelming, especially if you’re hiring remotely or entering the market for the first time. That’s where an Employer of Record (EOR) comes in. Think of an EOR as your on-the-ground HR and legal partner, handling the heavy lifting so you can focus on growing your team.

As mentioned, with an EOR in Israel, you don’t need to open a local entity to hire talent legally. The EOR becomes the legal employer on paper while you direct the employee’s day-to-day work. They manage everything from employment contracts and payroll to social contributions and terminations, all in compliance with local regulations.

Here’s how an EOR simplifies hiring in Israel:

  • Drafts and issues compliant employment contracts in Hebrew and English
  • Registers employees with the National Insurance Institute (Bituach Leumi)
  • Manages payroll, tax withholdings, and benefits contributions
  • Keeps up with labor law changes to ensure ongoing compliance
  • Supports onboarding, leave tracking, and offboarding procedures

Whether you’re testing the market or scaling quickly, an EOR gives you speed, security, and peace of mind, without the administrative burden.

Employment and Labor Laws in Israel

Israel’s labor laws are comprehensive and worker-friendly, emphasizing fairness, social benefits, and employee protections. Whether you’re hiring one person or building a team, it’s essential to understand the rules that shape hiring, compensation, and termination.

Written Employment Agreements

All employees in Israel must receive a written employment contract outlining their job role, salary, benefits, and termination terms. Contracts should align with Israeli labor law and be delivered within 30 days of employment starting.

Working Hours and Overtime

Under the Hours of Work and Rest Law 5711-1951, the maximum working week in Israel is 42 hours. The standard workweek runs from Sunday to Thursday, with Friday observed as a short or non-working day. The daily maximum is 8 regular hours, with up to 4 additional hours of overtime permitted.

Overtime is compensated at 125% of the regular hourly rate for the first two hours and 150% thereafter.

The weekly rest day varies by religion: Saturday for Jewish employees, Friday for Muslim employees, and Sunday for Christian employees. Employers cannot require an employee to work on their designated rest day without obtaining a permit from the Ministry of Labour.

Public Holidays

Israel observes 9 official public holidays, including Passover, Yom Kippur, and Independence Day. Many of these follow the Hebrew calendar, so their dates change each year. If a public holiday falls on a scheduled workday, employees are typically given the day off with pay.

Pension

Israel has mandated employer-provided pension coverage since 2008. Employers contribute 6.5% of salary toward the pension fund plus 8.33% as a severance component under Section 14, bringing the total employer cost to 14.83%. Employees contribute 6% of their salary.

Coverage must begin from the first day of employment for those with an existing pension policy, or after 6 months for new workforce entrants. Contributions can be made through a pension fund, provident fund, or executive insurance, depending on what is agreed between employer and employee.

Extension Orders (Tzavei Harchava)

Israel’s Ministry of Economy can extend sector-wide collective agreements to cover all employers operating in a given industry, regardless of whether they are party to the original agreement. These are known as extension orders.

Extension orders commonly affect pension contributions, travel allowances, convalescence pay, and clothing allowances. In many cases, they mandate benefits above the statutory minimum, meaning employers must apply the higher standard for their specific sector. EOR providers operating in Israel must ensure compliance with all applicable extension orders for each employee’s industry.

Non-Compete Agreements

Israeli courts take a balanced approach to non-compete clauses, weighing employer interests against the constitutional right to work under the Freedom of Occupation Basic Law (1992). Non-competes are generally enforceable where they are reasonable in duration, typically 6 to 12 months, limited in geographic scope, and where the employee received specific consideration such as access to trade secrets or specialised training. Unlike some jurisdictions, Israeli courts may reduce an overly broad restriction rather than void it entirely.

Data Protection

Israel’s employee data privacy framework is governed by the Privacy Protection Law (1981) and accompanying regulations, enforced by the Privacy Protection Authority (PPA). Israel holds EU adequacy status, which simplifies cross-border data transfers for multinational employers. Employers must register employee databases with the Registrar of Databases, obtain consent for non-essential data processing, and implement security measures in line with regulatory requirements.

Probation Period

Israeli law does not prescribe a specific probation period. In practice, most employment contracts set probation at 3 to 6 months.

Employees on probation retain all statutory rights from day one, including pension, sick leave, and annual leave entitlements. While probation may allow for shorter notice periods or a more straightforward termination process, the pre-dismissal hearing (shimua) remains mandatory regardless of where the employee is in their probation period.

Payroll and Employment Taxes in Israel

Minimum Wage

As of April 1, 2025, the national minimum wage rates in Israel are as follows:

Rate Type Amount (ILS)
Monthly ILS 6,247.67 (~USD 1,700)
Hourly (182-hour month) ILS 34.32
Hourly (186-hour month) ILS 33.58
Daily (5-day workweek) ILS 288.35
Daily (6-day workweek) ILS 249.90

The minimum wage is updated annually in April and is pegged at 47.5% of the average national wage. The next increase is expected in April 2026, with the hourly rate projected to rise to approximately ILS 35.40, representing a 3.3% increase.

Non-compliance carries significant consequences. Employers who fail to meet minimum wage obligations may face criminal charges of up to 1 year imprisonment, fines of up to ILS 226,000, and administrative penalties ranging from ILS 5,000 to ILS 35,000 per violation.

Income Tax

Israel uses a progressive income tax system where rates increase with income. Employers are responsible for withholding and remitting income tax on behalf of employees through the monthly payroll process. The 2025 annual tax brackets are as follows:

Annual Taxable Income (ILS) Tax Rate
Up to ILS 84,120 10%
ILS 84,121 to ILS 120,720 14%
ILS 120,721 to ILS 193,800 20%
ILS 193,801 to ILS 269,280 31%
ILS 269,281 to ILS 560,280 35%
ILS 560,281 to ILS 721,560 47%
Above ILS 721,560 50%

The 50% top rate includes a 3% surtax applicable to high-income earners. Tax brackets are currently frozen for 2025 through 2027 and will not be adjusted for inflation during this period.

For 2026, the 20% bracket has been widened to cover monthly income up to ILS 19,000, expanded from the previous ceiling of ILS 16,150, providing modest relief for middle-income earners.

Social Security Contributions (Bituach Leumi)

Both employers and employees contribute monthly to Israel’s national social security system, administered by the National Insurance Institute. Contributions are structured across two income tiers, with a maximum insurable salary of ILS 50,695 per month. Income above this threshold is not subject to further contributions.

Employer contributions are calculated as follows: 4.51% on monthly salary up to ILS 7,522, rising to 7.60% on the portion of salary between ILS 7,522 and ILS 50,695.

Employee contributions combine national insurance and the national health tax. For earnings up to ILS 7,522 per month, employees pay a total of 4.27%, made up of 1.04% national insurance and 3.23% health tax. For earnings between ILS 7,522 and ILS 50,695, the total rate rises to 12.17%, comprising 7.00% national insurance and 5.17% health tax.

Investment Incentives

Israel offers meaningful tax benefits under the Encouragement of Capital Investments Law. Companies with Preferred Enterprise status benefit from a reduced corporate tax rate of 7.5% in peripheral areas or 16% in central areas.

Preferred Technological Enterprises, typically qualifying tech and IP-driven companies, can access rates as low as 6% in peripheral areas or 12% in central areas on qualifying IP income. For tech companies considering EOR arrangements in Israel, these incentives may influence how employment structures are set up.

Mandatory Allowances

Beyond base salary, Israeli employers are required to provide several recurring cash payments that fall outside the standard payroll structure. These obligations apply regardless of employment type and must be factored into total cost planning.

  • Convalescence Pay (Dmei Havra’a) — An annual payment unique to Israeli employment law, separate from vacation or sick leave. Employees who have completed at least one year of service are entitled to a set number of convalescence days multiplied by the daily rate of ILS 471.40 for 2025. Entitlement starts at 5 days after the first year and increases to 10 days for employees with 4 or more years of service. Payment is typically made in June or July.
  • Travel Allowance (Dmei Nesi’a) — Employers must reimburse employees for daily commuting costs by public transport, based on the actual fare from home to workplace up to a statutory cap. This is a mandatory payment separate from salary, tax-deductible for the employer, and partially tax-exempt for the employee up to a defined threshold.
  • Clothing Allowance (Dmei Bigud) — Required under certain sector-wide extension orders. While not universally mandatory, it applies across several industries and typically ranges from ILS 500 to ILS 2,000 per year depending on the sector.

Employers should verify which allowances apply to their specific industry, as extension orders may mandate amounts above the statutory baseline. EOR providers operating in Israel are responsible for ensuring compliance across all applicable allowances for each employee’s sector.

How an Employer of Record Helps You Run Payroll in Israel

Payroll in Israel is more complex than most markets. Employers must calculate and withhold progressive income tax, make accurate Bituach Leumi contributions across two income tiers, fund mandatory pension and severance reserves, and stay current with sector-specific obligations under extension orders. On top of that, mandatory payments such as convalescence pay and travel allowance reimbursements must be factored into the monthly payroll cycle.

An EOR manages all of this end to end. This includes calculating withholdings, disbursing salaries in ILS on time, issuing compliant payslips, and filing all required contributions with the relevant authorities. With payroll errors potentially triggering audits or fines, having a local expert handle the process gives employers both accuracy and peace of mind.

Work Permits and Visas in Israel

Hiring foreign talent in Israel? You’ll need to navigate the country’s work visa process, which, while structured, can be complex. Israel welcomes global professionals, particularly in high-demand sectors like tech, healthcare, and engineering, but strict requirements apply.

Most foreign workers will require a B-1 Work Visa, which is employer-sponsored and tied to a specific role and company. The process involves submitting an application to the Ministry of Interior, providing justification for hiring a non-Israeli candidate, and ensuring the employee’s qualifications meet the job criteria.

  • Job-Specific Sponsorship: The visa is linked to a single employer and position.
  • Health Insurance Required: Proof of health insurance coverage is mandatory before entry.
  • Duration & Renewals: B-1 visas are typically issued for up to one year and can be renewed, depending on the role and project.
  • Family Members: Spouses and children may apply for a visa, but usually cannot work unless separately sponsored.

An Employer of Record can sponsor work permits on your behalf, manage all visa paperwork, and ensure your hire meets local legal standards, helping you avoid delays, denials, or compliance risks while hiring across borders.

Time Off and Leave in Israel

When hiring in Israel, understanding the country’s approach to paid time off and workplace policies helps you align with employee expectations and stay compliant with labor laws.

Mandatory Leave Entitlements

Annual leave entitlements in Israel are governed by the Annual Leave Law 5711-1951 and increase with length of service. Entitlements differ depending on whether the employee works a 5-day or 6-day workweek.

Length of Service 5-Day Workweek 6-Day Workweek
Years 1 to 4 12 days 14 days
Year 5 16 days 16 days
Year 6 18 days 21 days
Year 7 and above 21 days 28 days

Maternity Leave

Maternity leave in Israel is 15 weeks of paid leave, funded entirely by the National Insurance Institute (Bituach Leumi) at 100% salary replacement, not by the employer. Employees with 12 or more months of service are entitled to 26 weeks in total, with the additional 11 weeks taken as unpaid leave. Up to 7 weeks of the leave may be taken before the due date.

Parents may also choose to share the leave. Where both parents have 12 or more months of employment, up to 20 weeks can be transferred to the father. Where only one parent meets the service threshold, up to 15 weeks may be shared.

Paternity Leave

Fathers are entitled to 5 days of leave following the birth of a child. The first 3 days are deducted from the employee’s accrued annual leave, and the remaining 2 days from sick leave. Additional paternity leave may be available under the leave-sharing provisions outlined above.

Working Parent Protections

Israel provides several protections for working parents, particularly mothers returning from leave. Employees returning from maternity leave are entitled to a reduced workday of up to one hour less per day for four months following their return, without a reduction in salary.

Pregnant employees cannot be terminated without prior approval from the Ministry of Labour. Working mothers of children under 12 also receive additional protection against dismissal during their first year of employment after returning to work.

Sick Leave

Employees accrue 1.5 sick days per month, totalling 18 days per year, and can accumulate up to a maximum of 90 days. Pay during sick leave is structured as follows: the first day is unpaid, days 2 and 3 are paid at 50% of salary, and from day 4 onwards the employee receives 100% of salary, all funded by the employer.

A medical certificate is required from the first day of absence. Once employer-paid sick leave is exhausted, employees may claim an Illness Allowance directly from Bituach Leumi.

Employees are also entitled to 8 sick days per year to care for an ill child, or 16 days for single parents, drawn from their sick leave balance.

Employee Benefits in Israel

Beyond statutory entitlements, employers in Israel are generally expected to offer a competitive supplementary benefits package. In a tight labor market, particularly in tech and finance, benefits can be as important as salary. Common additions include:

  • Keren Hishtalmut (education fund) contributions, up to 7.5% employer and 2.5% employee
  • Meal stipends or daily lunch vouchers
  • Private health insurance top-up beyond national coverage
  • Pension contributions above the statutory minimum
  • Annual or performance-based bonuses
  • Flexible or hybrid working arrangements
  • Allowances for professional development or study

Employers should also be mindful of flexibility around religious observances, which is a practical consideration in Israel’s diverse workplace culture.

Terminations and Severance in Israel

Ending an employment relationship in Israel involves specific legal steps and protections designed to ensure fairness for both parties. Whether the departure is voluntary or initiated by the employer, following the correct procedures is essential.

Termination Process

A pre-dismissal hearing (Shimua) is mandatory for all terminations under Israeli Supreme Court ruling. Before any dismissal can proceed, employers must provide the employee with written notice of the hearing, clearly stating the grounds for potential termination. The employee must be given reasonable time to prepare, typically 3 to 5 business days.

During the hearing, the employee has the right to be accompanied by a representative, whether a lawyer, union representative, or colleague. The employer must genuinely consider the employee’s response before reaching a final decision, and the entire process must be documented.

Skipping or improperly conducting a shimua can render the dismissal void and expose the employer to significant compensation claims.

Notice Periods

Notice period requirements in Israel are governed by the Notice to Employee and Job Candidate Law 5762-2002 and increase with length of service. For the first six months of employment, one day of notice is required per month worked. From month seven to twelve, the notice period is six days plus two and a half days for each additional month. After one year of continuous service, a full month’s notice is required from both employer and employee. Payment in lieu of notice is permitted in all cases.

Severance Pay

Employees with at least one year of service are entitled to one month’s last salary per year of service upon termination, under the Severance Pay Law 5723-1963.

Most employers use the Section 14 arrangement, contributing 8.33% of monthly salary into a dedicated severance fund. This releases the employer from any further severance liability at termination. Without it, the full amount is owed directly by the employer.

Severance applies to most termination types, including resignation under qualifying circumstances such as health issues, relocation, or childbirth.

Final Pay & Benefits

All outstanding wages, accrued vacation, and severance must be paid promptly upon termination. Some employers also provide extended health coverage or additional benefits as part of exit agreements.

Using an Employer of Record to Administer Benefits in Israel

Benefits in Israel go well beyond what most employers are used to. Mandatory obligations include pension enrollment from the first or sixth month of employment, monthly severance accrual under Section 14, convalescence pay, and travel allowance reimbursements. Depending on the employee’s industry, sector-wide extension orders may also require additional payments such as clothing allowances or above-minimum pension contributions.

Beyond the statutory requirements, most employees in Israel expect a Keren Hishtalmut education fund contribution as a standard part of their package. Managing all of these correctly, at the right rates, on the right schedule, and in line with the applicable extension orders, requires detailed local knowledge.

An EOR handles every layer of this. From enrolling employees in the correct pension vehicle to tracking convalescence entitlements and ensuring extension order compliance, the EOR keeps your benefits obligations fully covered so you can focus on your team rather than the paperwork.

Expand into Israel Easily with Remote People’s Employer of Record in Israel

Israel offers access to one of the world’s most innovative and highly skilled workforces, but hiring here comes with real compliance depth. From mandatory pension and severance structures to extension orders and pre-dismissal requirements, the obligations are significant.

Partnering with an Employer of Record gives you a compliant, efficient path into the Israeli market without needing to establish a local entity. If you are ready to build your team in Israel, Remote People is here to make it straightforward.

Need help hiring in Israel? Contact us to learn how Remote People’s EOR services can help you hire fast, and stay compliant.

Frequently Asked Questions

No. You can hire in Israel through an Employer of Record without setting up a local entity. The EOR handles payroll, social security, pension, mandatory benefits, and compliance with Israeli labor law, including sector-specific extension orders.

Section 14 is the standard severance funding mechanism in Israel. Employers contribute 8.33% of monthly salary into a dedicated severance fund on the employee's behalf. Once in place, this releases the employer from any additional severance liability at termination. Without it, the employer owes the full severance amount directly, which can be a significant cost exposure.

Yes, but with limitations. Israeli courts balance employer interests against the employee's constitutional right to work under the Freedom of Occupation Basic Law. Non-competes are more likely to be upheld when they are reasonable in duration, typically 6 to 12 months, geographically limited, and tied to genuine business interests such as trade secrets or specialised training.


The Keren Hishtalmut is a tax-advantaged education fund where employers contribute up to 7.5% of salary and employees up to 2.5%. It is not legally mandatory but is considered a standard benefit in Israel and expected by most employees. The employer contribution is tax-exempt up to a defined salary threshold, making it an efficient part of a competitive compensation package.

Yes. A shimua is mandatory for all terminations, regardless of the reason or the employee's length of service. The employer must provide written notice, allow the employee time to prepare, and genuinely consider their response before making a final decision. Failing to conduct a proper shimua can render the dismissal void and result in significant compensation awards.

Several. Employers are required to provide pension contributions, convalescence pay, travel allowance reimbursement, and in some sectors, a clothing allowance under extension orders. Pension alone costs employers 14.83% of salary when combining the pension and severance components. These obligations must all be factored into total employment cost planning.